Tax-free NRE, taxed NRO and dividends
Because the UAE has no personal income tax, none of your Indian interest or dividends is taxed in the UAE, so the whole question is Indian, and it turns on which account the money sits in. Interest on your NRE account is exempt from Indian tax under Section 10(4) for as long as you are a non-resident, so it reaches you completely tax-free, and there is nothing to claim or reduce, it is already at zero. That exemption is a domestic one, not a treaty one, so it holds regardless of any treaty rate.
The taxed items are NRO interest and dividends. Interest on your NRO account is taxable in India, and the bank withholds TDS on it under Section 195, the non-resident section, at around 30 per cent once surcharge and cess are added. Dividends on Indian shares are taxable too, withheld at around 20 per cent. Left alone, those are heavy rates, well above what you actually owe under the treaty, so the point is to bring them down.
The treaty rate, and the UAE certificate that unlocks it
The India-UAE treaty caps these rates a long way below the domestic withholding. Interest is capped at 12.5 per cent, or 5 per cent where it is paid to a bank or financial institution, and dividends are capped at a flat 10 per cent. So your NRO interest can come down from around 30 per cent to 12.5, and your dividends from around 20 per cent to 10. One useful detail: the treaty rate is all-inclusive, so no surcharge or cess is added on top of it, unlike the domestic rate.
To get the lower rate, you give the payer, your bank or the company's registrar, a UAE tax residency certificate, which the UAE now issues through its EmaraTax portal, along with Form 41, which used to be called Form 10F, and a short declaration that you have no permanent establishment in India. There used to be a real argument that a UAE resident, paying no personal tax, was not liable to tax and so could not be a treaty resident, but that was resolved: the treaty defines a UAE-resident individual by days of presence in the UAE, not by paying tax, so a genuine UAE resident can claim. Under the new Indian law the relief provision is renumbered, but the mechanism is the same. Where too much has already been withheld, we also reclaim the excess through your Indian return. Getting the certificate, the forms and the reduced rate right is the whole job, and it is what we handle.